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Holiday lets – rental income – Part 1

By DENNIS SWING GREENE features@algarveresident.com

Dennis Swing Greene is Senior Partner and International Fiscal Consultant for euroFINESCO s.a.

Portuguese property investments are attractive because they can bring income, capital growth as well as personal pleasure, making them potentially secure, enjoyable and profitable.

However, along with making money, come fiscal obligations. You need to prepare for new commitments and bureaucratic demands in Portugal regarding your property rentals.

Are there special licensing requirements in order to let to holidaymakers?

Yes. Since the spring of 2008, new legislation came into force, reclassifying short term rentals to tourists as ‘Local Lodging’. Your offering should be registered through the local council and listed in the national registry of the National Tourist Board.

I rented out my apartment in Portugal last year and declared the income in the UK.  Do I also need to report in Portugal?

Yes. Whether you have short-term lets or a long term rental contract, you are required to declare the income first in Portugal.  This is due to the fact that the property is situated in Portugal and the essence of business activity takes place here. Where payment is made, in which currency, where renters come from – these circumstances are essentially irrelevant to the chargeable event.  Even if your tenants were foreign holidaymakers and you were paid outside of Portugal, you still need to declare the income to Finanças (in Euros).  

You may also have auxiliary tax obligations in your home jurisdiction.  The appropriate Double Taxation Convention will clarify potential overlaps.

What expenses can I deduct on my Portuguese tax return?

Only operating expenses are deductible;

Maintenance;

Repairs;

Integrated Services (such as utilities included in the rent);

IMI (Rates), formerly called Contribuição Autárquica  

Examples of such expenses are as follows:

Interior and exterior painting;

Repairs or replacements of the plumbing or electrical systems;

Utility expenses for lighting, heating or air conditioning;

Building insurance.

Also, in apartment buildings, collectively shared expenses:

Doorman and common area cleaning costs;

Building security;

Maintenance of elevators;

Condominium charges.

Other municipal taxes are also deductible.

Can I claim expenses for furniture and contents?

No. Because you are offering self-catering accommodations (fully furnished and equipped), appliances, furniture, linens, etc. are included and are considered capital expenditures, not operating expenses.

What about cleaning expenses? Are they deductible?  

Only partially. When letting self-catering accommodations, cleaning expenses between rentals are deductible.  However, maid service during occupancy is part of a full-service offering. Tourism is a highly regulated business and falls outside of the scope normal residential letting. Full-Service lodging usually requires special licensing and permits.

Private consultations can be scheduled at our offices in Guia (Albufeira), Lisbon (Chiado) and in Funchal (Sé), Madeira. In the Algarve, call 289 561 333, Lisbon at 213 424 210, Madeira at 291 221 095. Email info@eurofinesco.com or visit www.eurofinesco.com